US senate passes financial reform

The bill aims at reigning in banks and protecting consumers from risky lending pratices.

15 Jul 2010 21:04 GMT

Many Americans are furious with banks who received bail-outs from tax-payers [AFP]

The senate vote caps more than a year of legislative effort, after Obama proposed reforms in June 2009.

The new rules will establish a consumer-protection authority to monitor mortgage brokers, student lenders and other financial firms.

Critics complain that the new authority will be housed within the federal reserve, making it less powerful than an independent agency.

Rating agencies like Moody's and Standard and Poors could see changes to their entire business model. Currently these firms are responsible for rating some of the same companies who pay them, creating a conflict of interest, according to critics.

Hedge fund scrutiny

Large banks will have to set aside more capital to help them ride out times of crises without bailouts from tax-payers and hedge funds will face more scrutiny from regulators.

Many Americans are furious about government bail-outs for banks, when average workers lose their homes and jobs as a result of the worst economic downturn since the great depression of the 1930s.

"I regret I can't give you your job back, restore that foreclosed home, put retirement monies back in your account," Christopher Dodd, a democratic senator and one of the bill's chief authors said.

"The administration and its democrat allies in congress have taken a crisis and used it, rather than solving it"

Mitch McConnell, republican senate leader

"What I can do is to see to it that we never, ever again go through what this nation has been through."

However, business lobbies in the US, particularly bankers, opposse the reforms.

The bill will create 533 new regulations, 60 studies and 94 reports, according to the US Chamber of Commerce.

Republicans say the bill is more about partisan posturing rather than fixing the American economy.

"The administration and its democrat allies in congress have taken a crisis and used it, rather than solving it," Mitch McConnell, the senate republican leader, said.

Some political donors on Wall-Street, the centre of American finance, plan to steer campaign contributions towards the republicans, rather than Obama's democrats.

After the bill passed through the senate, Obama said, "because of this reform, the American people will never again have to pay for Wall-Street's mistakes".

"Unless your business model depends on cutting corners or bilking consumers, you have nothing to fear".